Gold Price Buy Sell Action – Recession? What Recession? (Part 1)

As I type this, gold us up $11.50 at $1,162.70. Most of that rise in the price of gold is due to the Dollar Index falling down to the 81 level again.  The following charts paint the current picture for gold.

Price of Gold 4/09/2010 – 8AM – $1,162.70

Kitco Gold Index

U.S. Dollar Index 81.01

What Is Currently Driving the Price of Gold Higher?

For the last 10 years the price of gold has been an almost perfect inverse of the U.S. Dollar.  But the last month we have seen more incidents of buying pressure driving the price of gold higher, escalating the past week.

I like to look at the Kitco Gold Index each day and throughout the day to get an idea of what gold is doing from a U.S. Dollar perspective, as well as the buying and selling momentum.

From the chart above, you can see the “Gold Price Change Due To Weakening Dollar” is up $6.50 and the “Gold Price Change Due To Predominant Buying” is up $5.00.

I don’t jump to quick conclusions when analyzing what’s going on with gold. It’s hard to buck me off of a trend that has been consistent for 10 years.  This past week of gold moving higher due primarily to buying pressure has caught my eye.  Why?  There are two schools of thought I am considering.

Two Schools of Thought As To Current Gold Price Action

First, let me state, long term, there is “no joy in mudville” for the U.S. Dollar as long as government keeps on their spending ways.  I recommend holding physical gold for this reason, despite any temporary possibilities of decline.

First School of Thought

Recession?  What Recession?

The first school of thought centers around what Obama calls “turning the corner” on jobs and the economy.   Interestingly enough, while temporary census jobs and the like have improved the jobs picture, we have not turned the corner as shown by the governments own statistics.

Unemployment Is Rising, Not Turning the Corner

Looking at the Bureau of Labor and Statistics Unemployment Indicators, we find that in every age class the unemployment rate is higher than March of 2009.  But even worse, the number of people who have been unemployed 27 weeks or longer has more than doubled since that time.

Also realize since the Clinton administration, the government unemployment numbers no longer count those who have given up looking for work.  Adding the so called “discouraged workers” to the unemployment mix would obviously make the rate higher.  Do you know anyone who has been without work for over a year?

Retail Sales and the Idiocy of the U.S. Consumer

According to a CBS MarketWatch article;

U.S. retailers’ March sales rose by their highest percentage in more than a decade, another sign that U.S. shoppers are back spending beyond what they need.

Without jobs, consumers are spending more?  Are advertisers that good?

Even with the tapped out consumer continuing to spend, many retailers are struggling to stay afloat.

The 31 retailers to file for bankruptcy in 2009 include:

Penn Traffic:11/18
Hackett’s Department Store: 11/10
InkStop: 10/1
Sacino & Sons: 9/11
Samsonite: 9/2
Escada: 8/13
Finlay: 8/5
Bashas: 7/12
Crabtree & Evelyn: 7/1.
Best & Co: 6/26
Eddie Bauer: 6/17
Arcandor: 6/9
Oilily: 5/28
Anchor Blue: 5/28
Door Store: 5/27
Filene’s Basement: 5/4
Bi-Lo: 4/19
Z Gallerie: 4/10
Ultra Jewelry: 4/9
Big 10 Tires: 4/2
Zounds Hearing Aid Centers:3/30
Al Baskin Co: 3/23
Drug Fair: 3/18
Strasburg-Jarvis: 3/11
Joe’s Sports & Outdoor Stores: 3/4
Everything but Water: 2/25
Ritz Camera; 2/22
S&K Famous Brand: 2/9
Fortunoff: 2/5
Bruno’s Supermarkets: 2/5
Gottschalks: 1/14

Mish Shedlock does a good analysis of what tricks retail companies have been up to in hiding the truth from the market.  Now would be a good time to dollar cost average into some short positions on some of these high flying retailers mentioned in the CBS MarketWatch article.

Even from my own interviewing of retailers when I’m visiting the local corner shopping outlets, I hear stories of how they are struggling to keep up with the monthly payments to the landlord.  Some businesses have closed up shop.  One lady had a knitting store and just couldn’t afford to stay open any longer, despite being a locals favorite.

Landlords are faced with the decision to lower their rates or face the consequences.  Things are not getting better.  What’s it like in your neighborhood? 

Stock Market Oblivious To the Sign of the Times

One other area that has people excited of late is the stock market.  While people’s 401k’s dipped to 201k’s, they have seen them rebound to 301k’s as the DOW heads for 11,000.  But with higher oil prices, currently over $80 a barrel and a retail sales industry on the verge of a bust, what is driving the stock market?

One answer is seniors who are taking on more risk to find a way to obtain more income as CDs, Treasuries and Money Market accounts are all paying very little.  In this quest for income, some seniors have turned to high yield bonds to help keep pace with their normal spending habits.  This will come back to haunt them in due time as interest rates have already started to creep up with the 10 year Treasury hitting 4% just last week, before settling lower.

As the stock market continues its rise, people will shun gold for what pays interest or might offer a better return.  Will they be disappointed?

Is the stock market indicative of the overall economy?

The answer is a resounding no.  The current stock market rise is a cyclical movement within an overall secular trend.  The bottoming of the stock market doesn’t arrive until we are at single digit P/E ratios.  Even the international and emerging markets are looking dangerous at present.

The stock market has enjoyed some green shoot activity from the Obama administration in helping out the auto industry, housing industry, financial industry and even the appliance industry, but anything the government does is not a fix for the economy.  Enjoy it while you can.  The government green shoots are only a delay of the inevitable bust.

Unemployment rising, consumers spending, retailers showing good numbers and the stock market climbing higher are all temporary events that have resulted in a stronger dollar and could very well continue for awhile.  This could have a negative effect on the U.S. dollar price of gold, albeit temporary.

Don’t Be Fooled By the Euphoria

Don’t expect the moves by the Obama administration to pan out for investors in the years to come.  Trouble lies ahead and the dollar will succumb to it. GDP growth relies on the consumer and businesses to keep spending.  They can’t keep this charade going forever.

Don’t sell gold because your government or the media tries to convince you the worst is over.  Ask your local shopping mall outlet store owners what the real deal is.  They know.  The economy is not all it’s cracked up to be and the dollar can’t continue the run higher for too long before reality sets in.

Gold Price Movement the Past Week

There is no real reason for gold to be moving higher at present as the dollar rises.  Granted, the Dollar Index is lower today testing the 81 mark, but the cyclical trend is still higher. There is one reason, however, that could possibly be why gold has been moving higher along with the dollar this past week, resulting in  increased buying pressure.

It’s the second school of thought which I’ll write about in the days to come.